Proactive Investors - Run By Investors For Investors

Food inflation helps UK grocers to deliver record Christmas sales but caution remains over general merchandise

Top spot in the Proactive grocer awards goes to Morrisons, while there was only real candidate for the wooden spoon – M&S
morrisons' trolleys
Food inflation hit 3.6% in December which meant the supermarkets could actually shift less in terms of volume and generate higher gross sales

Apart from Asda, which will release its figures along with those of its Wal-Mart Inc (NYSE:WMT) parent company in the coming weeks, we’ve heard from nearly all of the major UK food retailers.

First out of the block was German discounter Aldi which saw UK sales top £10bn in 2017 after its “busiest ever” Christmas season, during which sales rose 15%.

READ: Aldi's 2017 sales top £10bn for the first time after record Christmas

Like its peer Lidl – more on that further down – it has been taking market share away from the ‘Big Four’ as cautious UK consumers look for ways to reduce their outgoings.

Morrisons takes top spot

WM Morrisons PLC (LON:MRW) was next up and it reported a 2.8% rise in sales in the 10 weeks to 7 January on the back of efforts to improve customer service and offer competitive prices.

That pricing strategy will almost certainly have hurt margins, as the company said the price of a basket of key Christmas items were the same as last year despite input cost pressures arising from a weaker pound.

Short sellers had been building positions in the stock in recent months, presumably in the hope of a poor update, but they would’ve been unhappy with the 5% share price rise on the day.

Argos a worry for Sainsbury’s

Another to boast of a ‘record’ festive season was J Sainsbury plc (LON:SBRY) which “moderately” lifted its full-year profit expectations as cost savings from its takeover of Argos are coming through quicker than forecast.

Sainsbury’s saw like-for-like sales rise 1.1% in the 15 weeks to 6 January and, unlike Morrisons, it seems like it was able to do that without having to rely on higher food prices alone, with punters treating themselves to more of its Taste the Difference products.

Argos was a bit more concerning though and the company bemoaned “challenging conditions” as sales in the general merchandising division – essentially Argos plus a small input from Sainsbury’s own sales of electronics etc – fell 1.4% year-on-year.

Tesco also complains of drag from general merch

Tesco PLC (LON:TSCO) complained of a similar drag in its general merchandise business, although it still managed to generate like-for-like sales growth of 2.0% during a “record” four weeks before Christmas day.

Unsurprisingly given that grocery inflation hit 3.6% in December, food sales were the main driver of that growth, but the markets were disappointed on the whole having expected sales to rise by nearer to 3%.

Aldi reckons it’s “fastest-growing” UK supermarket

Like its discounter peer Aldi, Lidl also reported rampant sales growth over Christmas leading it to make the claim that it is the “fastest growing supermarket” in Britain.

Sales rose by 15% to record highs in December as it welcomed more shoppers through the door than ever before, with the final Friday before Christmas proving to be its “strongest ever” day of trading.

Even Waitrose dragged into price war

To the other end of the market and Waitrose – part of the John Lewis Partnership – reported gross sales of £928mln, up 1.5% versus last year on a like-for-like basis. If New Year’s Eve was included, that would rise to 2.2%.

The price war that has ravaged the industry (thank Aldi and Lidl for that) doesn’t just effect the likes of Tesco and Morrisons and Waitrose – often seen as a more ‘premium’ supermarket – Waitrose also complained of margin pressures.

M&S was just pants

Marks and Spencer Group Plc (LON:MKS) was probably the worst performer of the lot and was the only one to see sales fall.

When you think that you could sell 3.6% fewer food products in terms of volume thanks to inflation and still achieve the same amount of gross sales, registering a 0.4% decline in the final quarter of 2017 is almost a feat in itself.

Its clothing and home division didn’t fare any better – sales dipped 2.8% to £1.2bn.

View full MRW profile View Profile

Morrisons Timeline

Related Articles

H&T Pawnbrokers store
November 15 2017
“We have delivered a strong trading performance during the second half in the key segments of Pawnbroking, Retail and Personal Loans”
Medical tests
July 11 2017
In an operational update, the medical services and software company said a multi-centre investigator led study comprising data from 607 patients at two academic university hospitals has now been completed

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investor UK Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use